Have We Done Enough to Avoid a Greylisting by the Financial Action Task Force

South Africa is on the precipice of a possible greylisting by the Financial Action Task Force (FATF) with the October 2022 deadline to present a credible plan fast approaching. FATF will announce in February 2023 whether South Africa’s attempts at fighting financial crime has been sufficient to avoid a greylisting.

Written By of Cowan-Harper-Madikizela Attorneys

A report by the Financial Action Task Force called the Mutual Evaluation Report of South Africa found significant shortcomings in South Africa’s financial regulation which may result in the country being flagged as a high-risk jurisdiction for money laundering and financial terrorism. FATF has  put South Africa under observation since October 2021 and has listed eleven areas of concern that the Government of South Africa must address.

While South Africa scrambles to put measures in place to avoid a greylisting, business must prepare itself for the inevitable increase in compliance burdens as Treasury has introduced the General Amendment Bill in National Treasury during the third quarter of this year and which was approved by Cabinet in Parliament on 17 August 2022.

The General Amendment Bill seeks to align South Africa to international best practices by amending four Acts:

  1. Trust Property Control Act, 1988;
  2. Nonprofit Organisations Act 1997;
  3. Financial Intelligence Centre Act, 2001;
  4. Companies Act.

A significant step in the right direction is the focus on transparency by inserting a definition of “beneficial owner” specifically in relation to the Companies Act 2008 and Trust Property Control Act, 1988. Further notable amendments include:

  1. Changes and regulations on trusteeship and specifying offences;
  2. Increased record keeping for companies.

The Financial Intelligence Centre Act, 2001 has seen sweeping changes aimed at amending its powers and objectives. It seeks to increase risk management and compliance provisions and provide for the Financial Intelligence Centre to better monitor and detect potential financial crimes. It is anticipated that these approved changes in law will take about three years to implement.

Although major effort was put into the approved legal changes in an attempt to address the concerns of FATF, the biggest deficiencies remain the enforcement and prosecution of financial crimes. What remains to be seen is the ability of the criminal justice sector being the investigative authority, prosecutors and courts to effectively deal with the rampant corruption and other financial crimes. There are significant capacity and competence issues because of poor appointments and mismanagement.

With October around the corner, both business and government are awaiting the FATF outcome on whether the country has sufficiently demonstrated that it has a credible plan. It remains to be seen whether FAFT is satisfied with South Africa’s progress to date although the low prosecution rates of financial crimes remain an issue that may prove more difficult to address.

Clients seeking further advice are invited to contact Nicky Combrinck or Dominic Steyn of the Commercial and Tax Departments.

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